Former Executive Accuses Sempra Of Unethical Business Practices In Baja

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Aired 11/19/10

The former controller for Sempra Global in Mexico says he was fired for asking too many questions about the company's business dealings in Baja California. Sempra adamantly denies Rodolfo Michelon's lawsuit that claims the company bribed Mexican officials, and built a lavish oceanfront vacation resort "at utility ratepayers' expense." We discuss the questions that have been raised about the company's business practices in Mexico.

The former controller for Sempra Global in Mexico says he was fired for asking too many questions about the company's business dealings in Baja California. Sempra adamantly denies Rodolfo Michelon's lawsuit that claims the company bribed Mexican officials, and built a lavish oceanfront vacation resort "at utility ratepayers' expense." We discuss the questions that have been raised about the company's business practices in Mexico.

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Let's move on now to another subject. It's called Casa Azul, or blue house, and it's a multimillion dollar private conference center overlooking the Pacific in Baja California. It longs to Sempra, and is reported to be lavish he appointed with 14 bedrooms, ornate fountains and 20000�square feet of living space. So what's the problem? Who paid for all this? Ricky, corporate executives expect luxurious surroundings when they're making big decisions, what's the problem that the watch dog found with Casa Azul?

RICKY YOUNG: Well, first let me say, this story germinated right here at this table, because JW and I worked together on it, it was a channel ten UT coordinated effort.

RICKY YOUNG: This was paid for by Sempra, and Sempra says it was paid for by their share shoulder holders, they have a lot morely way in how they spend share holder money, that's why they can be by their liquid natural gas plant. But what this whistle blower guy says, he was Sempra's money guy down in Mexico, and was laid off earlier this year, and you know, maybe they regret that decision by now, but what he says is that there's rate payer money that went to pay for this. Now, you can't take electric bills from a little old lady in Vista and use it to pay for a grand estate down in Mexico. That is not okay. No one says it is. What Sempra says is that they keep the money separate and that they didn't use any rate payer money to pay for this thing. Now, what may boss told me repeatedly during this process is, you know, it's a good story either way because there are share holders in Sempra who probably, or maybe don't want their money spent that way either so --

GLORIA PENNER: Well, this is true. I was going to raise that whole idea of people who are waiting, you know, to see whether their shares go up or down, and looking at the dividends that come in and then wonder whether their dividends were reduced because some of that money went off to pay for things at Casa Azul. Is that your point.

RICKY YOUNG: That's exactly my point. You might question whether it's a good expense, given the lavishness of it, it looks like one of these resorts down in Puerto Nuevo or whatever. But Sempra's point is, their plant is far from civilization, and this gives them a mace to gather a meeting there. One thing that's interesting that came up is their own lawyers told them if they conduct Sempra business there as opposed to business from their local LN G unit.

GLORIA PENNER: Explain LNG.

RICKY YOUNG: I'm sorry, liquid natural gas. They take natural gas and compress it into a liquid, and it makes it easier to work with and easier to transport. So they have the only LNG plant on the west coast. Their own lawyers tell them if they were to conduct Sempra business down here at Casa Azul, that would maybe open them up to taxes in Mexico for what's going on on here in San Diego.

GLORIA PENNER: So they would owe Mexican taxes.

RICKY YOUNG: Yeah, yeah.

GLORIA PENNER: Because they're conducting accident at the resort that has to do with a Mexican based LNG plant.

RICKY YOUNG: No no no, the LNG plant pays taxes.

GLORIA PENNER: Oh.

RICKY YOUNG: The issue is, if the wig Sempra up here in San Diego, which has a lot more interest outside of Mexico, if they conducted business from the San Diego based company down there, it would open them up to taxes.

JW AUGUST: And the whole purpose of that place was to allow them to do that.

RICKY YOUNG: Right, they say it's a conference center for business.

GLORIA PENNER: Before I turn to the other editors for reflection on this, I'd like to ask our callers. Here the, the story is a whistle blower filed a lawsuit about the matter. And his complaint is that taxpayer -- ratepayers, you who pay your gas and electric bills are actually paying for this luxurious executive resort for Sempra in Mexico. How concerned are you? I mean, I assume you're paying your gas and electric bill every month and you're taking a look at it, and it's going up, and in fact, I think we're gonna have more rate increases. .

RICKY YOUNG: There's a billion whiches in increases on the way. The whistle blower also alleged that it wasn't really for business, that it was supposed to be like a personal retreat for the CEO who signed all the paperwork for this thing. I'm sorry to interrupt.

GLORIA PENNER: Oh, that's okay. I just wanted to ask my question, do you feel that the watch dog has investigated it, they're probably not finished yet, is this something that really needs to be pursued or should we simply take Sempra's word for it, that the share holders are paying that SDG&E ratepayers are not? I'd like to get your response to this at 1-888-895-5727. Let's talk a lot bit about the whistle blowers, you're part of the investigation, JW. When we have a whistleblower, you know, somebody who apparently was let any, he was fired.

JW AUGUST: Laid off.

GLORIA PENNER: Tell me about the credibility.

JW AUGUST: I was actually the first one to mic the contact with him and his attorney, because we wanted to evaluate when we got the tip about this. So I met him at a place and had cocktails and I -- I was checking the guy out. He's a smart man, CPA guy, could work in any of the top CPA firms on the west coast, was deeply concerned and quite a bit paranoid because going up against a big corporation like Sempra would make anybody jumpy. And after looking at him, and you know issue sometimes you sit back and look at somebody and try to evaluate them, I felt that the guy --

GLORIA PENNER: You didn't put him through a body scan though?

JW AUGUST: No, I didn't. And no radiation. But a mind meld I did. I thought the guy was legit. And worth attacking it forward. After evaluating all the information they had, I said wow, this is a terrific story. I think this guy is trustworthy enough for us to move past step A. Before he -- he saw the end coming, because when his bosses, when he raised issues, his bosses said, you like working here? He said, okay, I like working here, but he knew the end was coming and began accumulating documents. you'll see all the interior shots of this Casa Azul, the layout of the joint because he knew the end was coming, and they were gonna come after him.

GLORIA PENNER: Okay, well, we do have some callers but I want to go to bob Kittle this, and sort of broaden out the issue here. Of the sense of entitlement that characterizes top executives in high earning industries such as finance and certain businesses, this stirs resentment when the economy is dismal and unemployment is high. Can we expect more public acceptance of that kind of excess can I have spending when times are good?

BOB KITTLE: No, I don't think so, Gloria, and that is the broader public impact of this story is I think the fact that it brings back to the surface the notion of top executives sort of hiking in the age of, you know, the guilded age of robber barrens and the great Gatsby, Don Felsinger, the chairman of Sempra is paid about which he would be using more than any of the other executives, I think it's safe to say. So it brings back this notion of wall street's raping main treat, kind of thin. I would be surprised if Sempra was so unwise as to use rate payer money to build this. I suspect it did come out of the share holders' profits. Am that, if you're a share holder, you ought to have an interest in this.

GLORIA PENNER: Well, our number is 1-888-895-5727. We're gonna take a short break, and when we come back, I'm gonna take your calls and dig into a couple of other parts of this story having to do with -- should some lid of some sort be put on the kinds of compensation bonuses, perks, etc, that people are getting in an economy where so many people are out of work who are barely making ends meet? Again our number is 1-888-895-5727. This is the Editors' Roundtable, I'm Gloria Penner.

This is the Editors' Roundtable, I'm Gloria Penner at the table today with Bob Kittle from KUSI, with J. W August from 10 News, and from the UT, we have JW AUGUST. And my trainer has a similar name that's recent, I keep mixes it up. And at this point, we are gonna go right to the phones because a lot of people want to talk about this resort in Mexico owned by Sempra, quite luxurious, where did the money come from to pay for it and let's start with Gabriel in oak park. Hi, Gabriel, you're on with the editors.

NEW SPEAKER: Hello, thank you, I really appreciate the show. Thank you. Just as a rate payer here in San Diego, whether this comes from rate payer money or not, it just kind of infuriates me, that -- I mean this is a public utility, it's something that we have to use, essentially, at least in this day and age, the kind of profits that can be made from that, and at a time when the state governments and the local governments are struggling so much, and hearing this is where our money goes to, it's really kind of infuriating. And you've talked about here on the show, about whether these public utilities should be handled by the government or some you know .

GLORIA PENNER: Thank you very much. What is the California public utilities commission said about all this? Do you know JW judge?

JW AUGUST: Well, yeah, they've asked for copies of our stories and the records which we give them without a subpoena because we already have them on line. So anybody can see them. I think on your website and our website.

RICKY YOUNG: Yeah, that's true. They are interested in this, they're watching the litigation, specifically where an issue toward was rate payer money used, if rate payer money was not used, the jurisdiction doesn't care. so what they're looking at is that specific issue.

JW AUGUST: If I were a Congress man, this is the kind of story I'd get into.

GLORIA PENNER: All right. Shane from La Jolla is with us now, and Gabriel, thank you for your call.

NEW SPEAKER: Hi, you mentioned something about capping compensation for executives and what not. Enter member who's looking like 98�percent of Americans who looks up at those people, who would set this cap? I think it's a good idea, but what would be the cap is my question.

GLORIA PENNER: It's always the details, isn't it Shane?

NEW SPEAKER: Yes.

GLORIA PENNER: There really is no mechanism, is there, Bob Kittle for saying, okay, so executives can only earn a certain amount per year?

BOB KITTLE: There isn't in this general, however the Obama administration has managed to bring some bankers to heel when TARP money was being dispensed, setting rules that limit compensation. I frankly think it's a terrible idea for the government to try to set the of organizations. The market should do that. Of don fettlinger is making two hundred million whiches a year, . That's something for the share holders to remember did. Because it's their money that's being his salary. .

GLORIA PENNER: Thank you very much. Before we leave this story, and again, I urge our many callers to go to KPBS.org,/Editors' Roundtable, and post your comments so that we can read them and respond. Before we do that, there's one other area of this, aside from the Casa Azul matter, Ricky, there are also accusations from the whistle blower of bribery of Mexican officials to acquire land for this Sempra LNG company, that's a liquid natural gas. How serious is that kind of a charge considering that business in Mexico is conducted quite differently than in the United States?

BOB KITTLE:

RICKY YOUNG: Well, it's ilreal not just in Mexico but also here, American law forbids companies from paying bribes to officials in other countries. Now, of course, Sempra says that it was not a bribe, that it was a bond they had to pay when they were having a guy kicked off of this land on a trespassing charge.

GLORIA PENNER: Which guy kicked off the land.

RICKY YOUNG: I'm sorry, there was a guy who owned land down there, Sanchez Ritchie, some .

GLORIA PENNER: Needed.

RICKY YOUNG: Needed him off the land so they could have a buffer around their liquid natural gas plant, and he didn't want to go, and they got the authorities to take him off the land. They say they paid a bond for that, in case there were any injuries, and they provided a recent for the bond. But, you know, our tipster, the whistle blower, says that it was in fact a bribe. Or at least it amounted to one. And so --

GLORIA PENNER: There's a lot here. And we will follow it in 134 future weeks and see how it develops. So stay on top of it, okay? You just got your assignment.

I became aware of Sempra's "Casa Azul" in an article published in the "Reader" earlier this year prior to the other news agencies represented by Mr. Young & Mr.August who claim they brought it to the attention of the public. I believe the Reader should be given that credit. Perhaps the other news agencies got their lead from the Reader and were able to dig deeper into the scandal of this secretive and possible misuse of public and/or shareholders' funds. Thank you.